Dow Jones
The Dow Jones jumped in the futures market as hopes of a global recovery outweighed fears of a second wave of coronavirus in the United States. Investors are also pleased with Donald Trump’s clarification about the status of the country’s deal with China. Meanwhile, the closely watched fear and greed index and the RSI suggests that the index has more upside to go.
The Dow Jones index is up by more than 200 points because investors are hopeful of a global recovery of the economy. This talk gained momentum after we received the first economic numbers for the month of June.
Earlier today, Markit released the manufacturing and services PMI numbers from several countries. Data from the UK showed that the manufacturing PMI rose to 50.1 this month. A PMI figure of 50 and above usually sends a sign that the industry is expanding. The services PMI number rose to 47.0 from the previous 29.0. These numbers show that the UK is growing at a faster rate than what analysts were expecting.
In Germany, the manufacturing PMI rose to 44.6 while in France, it rose to 51.3. In the eurozone, the manufacturing PMI rose to 46.9 from the previous 39.4.
Meanwhile, in the United States, Steve Schwarzman, the founder and CEO of Blackstone said that the economy will have a V-shaped recovery in the next few months. He said this at the Bloomberg Invest Global virtual event held yesterday. He said:
“You’ll see a big V in terms of the economy going up for the next few months because it’s been closed.”
In the same forum, Bill Ackman, who made $2.2 billion from a $26 million investment during the crisis said that he expected the recovery to start recovering in the fourth quarter.
The fear and greed index shows that the Dow Jones has some more room to run. As I have written before, the fear and greed index uses a few data points to predict whether investors have become fearful. Some of the data it looks are the McClellan Volume Summation index, safe haven demand, put and call options, stock price strength, and junk bond demand.
As shown below, the index has moved from the neutral level of 50 and is now at 53. In the past, major corrections of the Dow Jones and other indices happen when the fear and greed index is in the higher sides of greed.
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On the daily chart, the Dow Jones reached an intraday low of $25,346 yesterday. This price was slightly above the 61.8% Fibonacci retracement level. It was also slightly above the 50-day and 100-day exponential moving averages. Today, the index is still in an ascending triangle pattern. This coupled with the fear and greed index means that the price will continue to rise as bulls target the next resistance level at $27,185.
On the flip side, a move below the 61.8% Fibonacci retracement level at $25,241 will invalidate the bull case.